*Develop a price selection strategy; since mortgages have several price components, you must decide how you are going to factor them into a decision.

Step 5: understand WHAT CONSTITUTES A VALID PRICE QUOTE

There are thousands of mortgage lenders, 10 times that number of mortgage brokers, and countless mortgage Web sites. Prices are quoted in newspapers, on radio and TV, online, even on billboards. One might think that soliciting price quotes to compare would be the easiest thing in the world. Wrong! Price quotes that are meaningful must be complete, timely, niche-adjusted and honest. Finding quotes that are all four is a challenge.

Completeness: In general, loan providers quote only rate and points. That is what is reported in the media, and what a loan officer will give you over the telephone. Stating fixed-dollar fees upfront is more the exception than the rule, although this information will generally be provided on request.

The most difficult information to find on a timely basis is the adjustable-rate mortgage features needed to assess the risk of future rate increases. Loan officers want to avoid discussing such information if they can, and shoppers rarely request it.

Timeliness: Lenders set their prices in the morning of each business day, usually after checking opening prices in the secondary market. Because prices can and often do change from one day to the next (and sometimes within the day), a shopper who wants comparable price quotes must shop all loan providers on the same day.

This rules out personal visits to them as a way of soliciting quotes. You can't shop enough sources in one day if you visit them. Fortunately, many if not most loan officers and brokers today prefer to do business by telephone and e-mail, delivering documents by express mail.

The timeliness requirement also rules out reliance on price quotes in newspapers or other printed media. Such quotes are obsolete when they appear.

Niche-adjustment: To be useful to you, price quotes must apply to your deal – they must take account of your niche adjustments. This rules out price quotes shown in the media, unless your deal exactly mirrors the generic assumptions underlying media quotes.

Honest Rates and Points: Loan providers legally can't be held to a quote of rates and points. Since the market is volatile, Monday's price may not apply Thursday. All loan providers, honest and dishonest alike, warn borrowers that price quotes aren't firm until they are locked.

An honest mortgage quote on Monday is one that the loan provider would lock on Thursday when the shopper has completed the lender's lock requirements, assuming the market has not changed since Monday.

Unfortunately, some loan providers low-ball their price quotes to beat the competition, then raise it later when they lock. For example, you select the loan provider quoting the best price, but when you lock the following week, the price is one point higher. "That's the market today," you are told. In fact, the market didn't change, all that changed was the rogue's price. The market price on the lock day is what the rogue says it is.

If there is no objective way to verify the market price, a home purchaser faced with an imminent closing date is helpless against this chicanery. Refinancers are better armed because they can abort the deal, provided that they know what is going on and are prepared to lose whatever fees they have paid.

Honest Fixed-Dollar Fees: Locking the price means locking the interest rate and points. Lender fees specified in dollars are not locked. Some rogue lenders keep these fees close to their vests, and inflate them to the extent possible, sometimes at the last minute.

This is not a problem if you are dealing with a mortgage broker. In dealing directly with lenders, however, you want a guarantee of fixed-dollar fees. You also want a guarantee that they won't mark up any third party services. I will discuss this problem further in the last column of this series.